Debt consolidation can be defined as taking out one loan to pay off many others loans. This is normally done to secure a lower interest rate and also secure a lower fixed interest rate or for the convenience of servicing only a single loan.

Debt consolidationis a form of a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as security, most commonly a house or factory in case or a work place etc. In this case, a mortgage is secured against the house. The valuation of the loan allows a lower interest rate than without it, because by valuation, the asset owner agrees to allow the forced sale of the asset to pay back the loan. The risk to the lender’s side is reduced so the interest rate offered is lower.

Consolidation will affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be taken very carefully.

Bankruptcy v/s Debt Consolidation

The Advantages of Bankruptcy:

If you file for bankruptcy, you will be granted immediate but only temporary relief with the automatic stay. The main motive of bankruptcy is the relief of most, if not all of your debts. You are debt free legally once you get the discharge and you can have a financial fresh start.

The Negative Effects of Bankruptcy:

The biggest fallback of bankruptcy vs. debt consolidation is the immediate impact on your credit score. You cannot clear bankruptcy from your credit report for 7-10 years.

The Advantages of Debt Consolidation:

It helps an individual from handling large debts from multiple creditors. It joins all your debts into one single debt management program. It lessens the interest rate and cuts off the late fees on your loans.

The Negative Effects of Debt Consolidation:

It will have minimal impact on your credit score. Till the time you fully pay your accounts, a note saying that you are paying by credit-counseling agency will appear on your credit report.

There is actually no simple solution to getting yourself out of debt. Bankruptcy can instantly donate debt relief but at the cost of your assets and credit score. Debt consolidation is easier with minimum effect on your credit, however, it does take time

For more information on debt consolidation bankruptcy, check out the info available online; these will help you learn to find the bankruptcy vs debt consolidation!

Bankruptcy and debt consolidation can both remove your debt. But each will have different effects on your credit score and future financial choices. Before choosing between bankruptcy and debt consolidation, educate yourself on the advantages and disadvantages of each.

The Advantages Of Bankruptcy

Filing bankruptcy will grant you immediate but only temporary relief with the automatic stay. Debt collection by creditors are no longer allowed. Annoying phone calls, repossessions, and mortgage foreclosures are all stopped temporarily. The main goal of bankruptcy is the discharge of most, if not all of your debts. The discharge wipes out many types of unsecured debt like credit card and medical debts. You are legally debt free once you get the discharge and you can have a financial fresh start.

If discharge through a Chapter 7 bankruptcy is not possible, then a repayment plan through Chapter 13 is your next alternative. A bankruptcy repayment plan will allow a debtor to payoff debts over a three- or five-year period. A Chapter 13 bankruptcy repayment plan is like a debt consolidation program with more restrictions.

The Negative Effects Of Bankruptcy

The biggest disadvantage of bankruptcy is the immediate impact on your credit score. You cannot remove bankruptcy from your credit report for 7-10 years. While you can improve your credit score after your discharge, for a few years you will have to work with sub prime lenders. This means higher interest rates on your future loans or credit cards.

Since bankruptcy is a federal court case, you need to give detailed financial records to the court and creditors. Your financial affairs will become open to the public.

On a Chapter 7 bankruptcy, a trustee will liquidate your assets and divide it equally to all your creditors. Under a Chapter 13 repayment plan, payments may be deducted from your paycheck for up to five years. You will need to turn-over your disposable income to repay your creditors.

You cannot use bankruptcy again for the next eight years after the discharge of your debts.

The Advantages Of Debt Consolidation

Debt consolidation saves an individual from handling large debts from multiple creditors. It combines all your debts into a single debt management program. Debt consolidation lowers the interest rate and waives off the late fees on your loans. It also removes the accrued interest and penalties on your loan. Every month you pay only the consolidation company instead of many creditors with different due dates. The consolidation company will manage paying off all your creditors for you. This will lessen the occurrence of late payments on your loans.

Similar to bankruptcy, you can avoid harassing collection calls from debt collectors. The consolidation company will handle and negotiate with your creditors on your behalf. The company is now representing you and all future collections will go through them. After paying all the accounts in full, the company will also negotiate to get your accounts reported in your favor.

The Negative Effects Of Debt Consolidation

Debt consolidation will have less of an impact on your credit score. Until you fully pay your accounts, a remark saying that you are paying by credit-counseling agency will appear on your credit report. Getting and qualifying for a new credit will become difficult at start.

Choosing Between Bankruptcy And Debt Consolidation

There is really no simple solution to getting yourself out of debt. A Chapter 7 bankruptcy can instantly give you debt relief but at the cost of your assets and credit score. Debt consolidation is simpler with minimum effect on your credit, however it does take time.

Ferlix Grant writes for 713DebtorBankruptcy.com. Continue reading the battle of bankruptcy vs debt consolidation and make an informed decision about bankruptcy alternatives. Get info on where you can download FREE debt consolidation e-books when you visit.